Jump‐starting Cleveland's new urban housing markets: Do the potential fiscal benefits justify the public subsidy costs?

Abstract

This article presents an analysis of subsidizing new inner‐city housing in Cleveland, OH. It focuses on the fiscal costs and benefits to the city and assesses the effectiveness of current subsidy programs. Costs include land, site cleanup, infrastructure, tax abatement, and subsidized first and second mortgages. Fiscal benefits include property tax revenues (for both the new housing development and the resulting positive neighborhood externalities) and income tax revenues. The case study examines 10 new housing projects (40 percent of new projects) started in Cleveland between 1990 and 1993.

The city subsidy per unit was $25,600, and average benefits were $12,800. Most costs were realized from lot preparation. Large subsidies connected to jump‐starting were associated with a substantial increase in housing starts despite a two‐ to three‐year lag time. Policy recommendations for more efficient subsidies include having local planners prepare and market lots and reducing tax abatement time.

Keywords:

• Housing policy
• Housing subsidy
• Cost‐benefit analysis